Chief resilience officer is lesson in risk management

It was a bad PR day for the city of Minneapolis last week when its chief resilience officer left after only seven months and without having turned in any finished work.

The jokes here almost wrote themselves — "maybe Minneapolis needs a tougher chief resilience officer" — and it was easy to conclude this must be just a make-work post for the sprink-ling of feel-good nonsense around the city. In fact, with the right kind of leadership from the boss this could be a real job. So business leaders who get nothing out of this episode except a chuckle maybe haven't looked closely enough.

Corporate CEOs might not ever have a chief resilience officer on their executive teams, but if they swapped out "resilience" for "risk" they might see some similarities between executives hired to look ahead and try to spot what can go wrong. And the CEOs have a similar challenge making their chief risk officers effective that new Mayor Jacob Frey has making the Minneapolis resilience officer job really work.

It's important to note right away that the city only has this job because of the Rockefeller Foundation, not the mayor. The foundation several years ago decided to drop more than $160 million on its 100 "resilient" cities program. Its big idea is that the institutions and people who reside in cities need to be better equipped to thrive with changing climate patterns, chronic poverty, outbreaks of disease and so on.

A classic example of the problem is the New Orleans of 2005, when a powerful hurricane made landfall nearby and flooded most of the city. Hundreds died, yet it wasn't even fair to attribute these deaths to a natural disaster. Most of those people died because they were too old, poor or sick to get to a safe place. A city built to be resilient wouldn't have tolerated the conditions that allowed that to happen.

No city has the same set of priorities, of course. The city of Christchurch in New Zealand, still recovering from a series of earthquakes, chose a seasoned manager with a background in engineering and land surveying as its first chief resilience officer.

What Minneapolis cared about is reflected in its choice of Kate Knuth, a former state legislator with a background in environmental education. Minneapolis put the risks of extreme weather and climate change high on its list along with more chronic problems.

How climate change can be a top risk for an inland city in a cold-weather state seems debatable, although Minneapolis certainly had the problems the foundation identified when it decided to fund these chief resilience officer jobs.

One is that cities are complex places, with lots of people and institutions all shaping life in the city along with traditional city government departments. The other is that city leaders could learn from what has worked elsewhere only if they were aware of these solutions.

The chief resilience officer, then, has the classic staff position challenge of needing the cooperation of lots of different people both outside City Hall and down the hall, many of them with agendas of their own or no interest in talking about a potential problem that seems to lie over the horizon.

It's a far from perfect analogy, but someone doing that job at City Hall could compare notes on the challenges with a chief risk officer in corporate America. Both positions are thoroughly modern creations, although Accenture in a 2013 study on risk management reported that somebody with the job if not the title of chief risk officer was working in almost all big organizations.

The risk management job once meant overseeing processes to ensure compliance with legal requirements or limits on market price risk, although more recently it's evolved to encompass a broader array of risks.

In judging whether these risk managers have been effective, though, one academic assessment came out last year that found plenty of failure at financial firms with risk officers. The three researchers concluded that not only did the chief resilience officers not keep a lid on risky behavior, their very presence in the company made the problem far worse.

The team mostly examined investments in complex financial derivatives up through the financial crisis of 2008, and one explanation they offered for the explosion in risk-taking was that a resilience officer helped define a bright line of risk limits, maybe for a particular kind of trading position. In response the operating managers engaged in risks that always went right up to the line, leaving no room for error.

The other management weakness they identified was an interesting little mental glitch we all have called moral licensing. In a nutshell it's deciding, after doing something "good" or just thinking a virtuous thought, that it's now OK to do something bad. It's what causes otherwise thoughtful people to reward themselves with a full box of Girl Scout Cookies after a vigorous session in a Y fitness room.

Just having a risk officer and risk management policies likely gave the operating managers the license to take more risks.

The researchers didn't blame CEOs for using a chief risk officer to cover up their aggressive plans, yet these were still cases of poor CEO leadership. The boss has to delegate, of course, but it's the CEO's job to make sure the risk executive has the right goals and has to support those goals in front of the rest of the team — in this case at least flagging if not containing risk.

The same thing is true at Minneapolis City Hall with this newfangled resilience job — supporting a common goal of finding practical ways to confront the most likely risks to the city.

When the foundation grant runs out, though, it might be just fine to let this City Hall position quietly disappear. Unlike corporate risk management, political skills seem to matter here more than specialized technical expertise. The work can also be shared by others.

It's also true City Hall already had someone who should have been working hard on what needs to be done to keep people safe as the world changes, way before anyone heard of any foundation money.

It had a mayor.

lee.schafer@startribune.com

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